Financial Year End Checklist

About the Author:

Paul Wilton (editor)

CA with degrees in commerce, accounting and information technology. Paul worked overseas in the “Big 4” accounting firms and served as a director at Audit New Zealand before setting up his own consultancy. Author of A-Z of New Zealand Business Law, Paul has over 20 years of experience as a business owner and consultant. He joined FBA in 2004 and is totally committed to providing excellence in quality and value to our subscribers. 

---

Each year we update our checklist for year-end planning, so as to ensure that you do not miss out on tax deductions that are available to you.

ACC LEVY:

ACC is deductible in the year in which it is due and payable. If you had an ACC invoice that was due on or after 1 April 2018, but paid it before 1 April 2018, do not forget to claim it for the 2019 tax year.

ACCOUNT BALANCES & ACCRUALS:

Check with your accountant what information they require.

Typically, you will need the following snapshots as at close of business on 31 March 2019:

• A list of outstanding debtors and creditors with amounts owing at year end. See also: Bad Debts below.

• Closing balances on your bank statements.

• Bank reconciliations or details of outstanding payments, deposits and other reconciling items.

• A wages summary.

• An estimate of wages accrued to 31 March but paid at the end of the week.

• An estimate of Holiday Pay and Long Service Leave owing to employees – see Other Expenses below.

• Interest portion on debt repayments to 31 March.

ADVERTISING:

If the period of the advertising relates to no more than six months after 31 March and the prepaid portion is less than $14,000 per contract, then it is fully deductible in the 2018-2019 year.

ASSETS:

Acquisitions

• Depreciation can be claimed from the first day of the month that the asset was acquired, so be sure to keep an accurate record of the date of purchase. If you are planning to buy, consider doing so before year-end.

• Assets acquired singly or along with other assets in the same depreciation category may be written off immediately if the total purchase cost is $500 or less (excl GST), providing the assets do not become part of a larger depreciable asset.

• Consider whether asset splitting is possible. For example, if you have purchased a residential property for investment purposes you can get a deduction for the chattels such as carpets, fridge and curtains if you can separately identify the costs.

• Check depreciation rates are in agreement with Inland Revenue Department prescribed rates. Refer to the IRD depreciation finder at www.ird. govt.nz.

• If a trade-in is involved then ensure that the asset is capitalised at its full cost and not the net cost after deducting the trade-in.

• If the asset is purchased on hire purchase or other borrowings, be sure to include the outstanding debt.

• Identify whether any assets should be subject to a private use adjustment for personal use.

• Include depreciation for any intangibles, such as patents.

Disposals and Scrapped Assets

• Adjustments will need to be made for any assets sold, destroyed, traded in, stolen or scrapped. Retain records of dates and costs.

• Review your register for assets no longer used and where necessary consider applying to the IRD to have these assets written off.

BAD DEBTS:

Bad debts are not deductible unless they are written off in the accounting records prior to the end of the financial year. In addition you must have sufficient documentation to prove that the debt is irrecoverable. This includes copies of any correspondence and a record of efforts made to recover the debts.

If a bad debt arises in respect of a transaction under the financial arrangement rules, a deduction may be claimed even where the debt is not ‘written off’ prior to the end of the arrangement. This applies if the debt is remitted by law (on liquidation or bankruptcy) or if the debtor company has entered into a composition with the creditors, being an agreement to release the debtor from making all of the remaining payments.

CONSUMABLE AIDS

The unexpired portion of consumables used in conjunction with, but not forming part of, the final product can be deducted in the year of purchase, provided the total of all unused stocks at year end does not exceed $58,000.

CURRENT ACCOUNTS

Check that you have not overdrawn your shareholder current account as this could give rise to a deemed dividend or FBT liability on the loan. If this applies, discuss your options with your accountant. These include repaying the loan before year end, paying a shareholder salary or declaring a dividend.

DISCOUNT PROVISIONS

If a prompt payment discount is offered to debtors, then a provision for the potential discount can be made and claimed at balance date.

DIVIDENDS

Ensure 2018-19 dividends are declared before 31 March 2019 and pay the withholding tax by 20 April.

DONATIONS

Companies can claim all donations made to registered charitable organisations, up to a maximum of their taxable income for the year.

ENTERTAINMENT

Certain types of entertainment are only 50% deductible. You will need to identify the non- deductible portion so that it can be added back to your profit for tax purposes (See table on Page 23 of our Quick Reference Guide).

You will also need to make an adjustment in your GST return after submitting your income tax return. 

GST FOR TAX PURPOSES

GST registered taxpayers

Income and expenditure are reported excluding GST and depreciation is calculated on the GST-exclusive cost of the asset.

Non-registered taxpayers

Income and expenditure include GST, depreciation is calculated on the GST-inclusive cost of the asset and the cost of trading stock also includes GST.

HOME BUSINESS EXPENSES

A portion of home occupancy costs can often be claimed and this is generally in proportion to the floor area of your dwelling used for business purposes. Records of the following expenses should be kept:

• electricity and gas

• home phone rental - See phone expense below

• insurance – home and contents

• mortgage interest or rental

• rates – land and water

• repairs and maintenance

Some self-employed people work from home and have work-related visitors. On this basis you should also be able to claim a portion of gardening costs.

IMPUTATION CREDIT ACCOUNT

If you are operating under a company structure, check the company’s imputation credit account. If it is likely to have a debit balance at balance date, then you should make an extra payment of income tax to avoid penalties. A 10% penalty compounding 6-monthly applies if the shortfall is not paid by 20th of June.

INSURANCE PREMIUMS

Insurance premiums are deductible provided they are not prepaid for more than 12 months and the total annual premium for each policy does not exceed $12,000.

LEAVE PROVISIONS AND BONUSES

Amounts owing at balance date for bonuses, holiday pay and long service leave are only deductible if paid out within 63 days of year end, otherwise they are not deductible until the following year.

LEGAL FEES

These may be claimed in full if the total is no more than $10,000. If the total is greater, then all of your legal fees must be split between capital and deductible expenditure.

PHONE

Telephone and communication equipment may be prepaid and claimed up to 2 months in advance. If home is the centre of business operations or management, claim 50% of your home phone rental;

RENT

Prepaid land and property rent is deductible provided it is not prepaid for more than six months and the amount prepaid is less than $23,000. Prepaid livestock or bloodstock rental is deductible on the same basis.

REPAIRS AND MAINTENANCE

If the work is carried out before year end then the amount will be deductible in the current year. The total cost of a service contract is deductible if it has less than three months to run at balance date and costs less than $23,000 for a full year. If a warranty is purchased with a fixed asset, ensure the cost of the warranty is separately identified so it can be deducted rather than capitalised. STOCK: If your turnover is less than $1.3m and you can reasonably estimate that you have less than $10,000 worth of trading stock then you do not need to value it or include a change of stock value in the calculation of your annual income. Otherwise:

• obtain an accurate stock count of all raw materials, finished goods, goods in transit and work in progress at year end; and

• determine the appropriate valuation method (for tax purposes you can value stock at the lower of cost or market value, but whichever method you use must be supported by independent records or documentation. If turnover is less than $3m you can use the Market Selling Value method).

It may be worth doing a stock take anyway if you have obsolete stock to write off or if you wish to confirm that your system and physical stock levels are in agreement.

SUBSCRIPTIONS

Newspapers, journals and periodicals are deductible without adding back unexpired amounts. Association memberships are deductible provided they extend no more than 12 months after balance date and the subscription does not exceed $6,000.

TRAVEL

Travel and accommodation - advance bookings for business related travel and hotel or motel accommodation are deductible provided it is not more than six months in advance and the total does not exceed $14,000.

OTHER

Prepaid services other than those mentioned may be expensed in the current year if the prepayment does not exceed 6 months after balance date and the amount is up to $14,000.

In advance of year end, it is important to consider whether you have made all the required adjustments, elections, disclosures and notifications for the 2019 year.

FBA Editor

---

Related Articles